Microsoft's Bid for Yahoo

I'm sure you've already heard the news of Microsoft's bid to buy Yahoo for a staggering 44.6 billion dollars. It seemed to spread like wildfire across the media. Clearly, the internet business is booming. But like Microsoft in the software business, the only true internet giant is Google. They have far surpassed Yahoo! in their key market of advertising. And then there's Microsoft, late in the market, and trailing behind, struggling to keep up, using cash as leverage.

The internet business is changing the way the software industry works. After the core functionality is created in an internet company, significant upgrades no longer seem like a necessary task. Instead, small increments of change are put online, creating a steady stream of upgrades, fixes, features, and tweaks. This way, users notice changes quicker, and don't have to wait several years, and migrate to an alien product.

In the search based ad-market, Google has a 75% share of the market, while Microsoft and Yahoo combined, have only an 18% share.[1] Microsoft's investment into Yahoo could prove a wise investment, but only if the hard task of integrating the new company into their internet infrastructure is done properly -- a daunting task considering the size of Yahoo.

In the end, the revenue gained from advertisers comes down to the question, "Which services provide better payback in terms of money?" Right now, Google's simple ad-words advertising seems to be the best, with their easy and comprehensive data compilations of who viewed and clicked ads. Another important factor is that Google's ad program seems to be more diversified throughout the internet, with more websites choosing Google ad-words over other forms of advertising.

So in the end, is it a wise buy by Microsoft? I'm really not sure, but one thing is clear, if Microsoft plans to one day make a significant revenue from advertising, their current strategy isn't much better.

What is your opinion on Microsoft's bid for Yahoo?

Sources:
[1]Microsoft Bids for Yahoo: Do Two Losers Make a Winner?